Analysis of Trump's Tax Plan Shows Big Cuts in Taxes, Federal Revenue -- 2nd Update
By Richard Rubin
Donald Trump's tax plan would cut federal revenue by $9.5
trillion over a decade and boost the after-tax incomes of the
wealthiest households by an average of more than $1.3 million a
year, according to an analysis released Tuesday.
The Republican presidential contender's plan, which would cut
tax rates and push millions of households off the income tax rolls,
would lower federal revenue by 22%, requiring significant new
borrowing or unprecedented spending cuts.
"The revenue losses from this plan are really enormous," said
Leonard Burman, director of the nonpartisan Urban-Brookings Tax
Policy Center, which released the study. A bipartisan panel
reviewed the report before its release.
Mr. Trump's tax plan would compress today's seven individual
income tax brackets into three and set a top rate of 25%, down from
39.6%. It would exempt each person's first $25,000, or each married
couple's first $50,000, from income taxation. The plan would also
cut the tax rates on business income to 15% and curb some
In a year when GOP presidential candidates have been competing
with each other to offer big tax cuts, Mr. Trump's is the largest.
It is 41% bigger, for instance, than Jeb Bush's plan, the center
Republicans, who campaigned four years ago on avoiding tax cuts
in an era of budget austerity, now say tax reductions are among the
best ways to increase economic growth. The center plans to analyze
other candidates' plans, including those of Marco Rubio, Ted Cruz,
Hillary Clinton and Bernie Sanders.
Mr. Trump's website says his plan would be revenue-neutral. The
center's analysis shows otherwise.
On average, each U.S. household would get a $5,144 tax cut in
2017, increasing after-tax income by 7.1%. The gains are highly
concentrated among the highest-income households, which get a
bigger percentage of the tax cuts than the share of taxes they pay
now. The top 1% of households, those making over $732,323, would
get 35% of the tax cuts. The top 0.1% of households would see
after-tax income increase by an average of 18.9% and would get an
average tax cut exceeding $1.3 million.
On the lower end of the income scale, Mr. Trump's plan would
exempt 33 million additional households from income taxation. That
continues a trend that Republicans, such as ex-presidential
candidate Bobby Jindal, have lamented. Mr. Jindal and others argue
that households that don't pay income tax lack "skin in the game"
of the federal budget.
As a result of Mr. Trump's plan, 63% of households would pay no
federal income tax in 2017, up from 44% under current law,
according to the study by the center, which is a nonpartisan
project of the Brookings Institution and the Urban Institute. Mr.
Burman is a former Clinton administration official.
Mr. Trump's campaign didn't respond to multiple inquiries from
the Tax Policy Center, so the analysts had to make assumptions
about the details of his plan. Some of those assumptions, however,
are generous to Mr. Trump. For example, his proposed 15% tax rate
on business income would give workers an incentive to become
independent contractors and avoid the higher rates on wages. The
center assumed that the government would be able to curb such
A spokeswoman for Mr. Trump said, "The policy speaks for itself
and many experts, including [economist and journalist] Larry
Kudlow, have praised the plan since its release in September."
The estimated revenue loss is close to estimates that a separate
group, the Tax Foundation, released when Mr. Trump unveiled his tax
plan in September. The Tax Foundation estimated the plan would
reduce federal revenue by $12 trillion over a decade, or $10.1
trillion after accounting for economic growth. Tuesday's analysis
doesn't attempt to measure any growth caused by the tax cuts,
though it says deficit-financed tax cuts tend to increase interest
rates and do little for long-term economic growth.
Mr. Trump, a billionaire real-estate developer and television
star who is leading national polls on the GOP race, has said his
tax plan would cost him a fortune and has pointed to his plan to
tax carried interest as ordinary income, not capital gains, as a
way to raise taxes on some wealthy investment managers, who he said
are "getting away with murder" by paying so little.
But carried interest minimizes taxes now because the top capital
gains rate of 23.8% is so much lower than the top tax rate on
business income of 39.6%, and the gap makes it attractive for
private-equity managers to convert ordinary income into capital
gains. Under Mr. Trump, capital gains would be taxed at 20% and
business income would be taxed at 15%.
"There would be a huge windfall for private equity and hedge
funds," Mr. Burman said.
Write to Richard Rubin at firstname.lastname@example.org
(END) Dow Jones Newswires
December 22, 2015 15:21 ET (20:21 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.